Advantages of Investing in Opportunity Zones
The new federal tax law passed in 2017 included an Investing in Opportunity Act. The Act established Opportunity Zones and Opportunity Funds. The Opportunity Zone Act was designed to stimulate investment in federal and state economically distressed areas. Taxpayers who invest in the Opportunity zones can benefit from several capital gains tax incentives.
Opportunity zones defined
Opportunity zones are nominated for inclusion by each state.. The criteria are generally based on census tracts, low-income status, median family income, the poverty rate, and geographical requirements. So far, 8700 tracts have qualified as Opportunity Zones.
The Opportunity Zone Act created two Internal Revenue Code sections which govern Opportunity Zone funding. The Opportunity Zone Act is less burdensome than other low-income investment programs because it requires less government oversight and is less restrictive.
Opportunity Zone investments focus on capital gains treatment instead of tax credits. Fund managers typically handle the investments instead of government agencies though investors can control their own investments as well.
Unlike tax credit systems which limit available tax credits yearly and which thus limit the number of possible investors; the new Opportunity Zone program has fewer such limits. There is no cap/limit on the amount of capital investors can put into the Opportunity Zone program so even the most depressed communities can be helped.
How Opportunity Zone investment requirements
Investors must invest their funds in what are known as qualified “Opportunity Funds.”
As a refresher, investors who sell stocks, bonds, and other assets subject to capital gains taxes usually need to pay capital gains taxes the year they sell the assets. By investing in an Opportunity fund within 180 days of the sale of the asset, investors receive several benefits:
- They can defer payment of the capital gains tax until April 2017 for investments held until the end of December 2016.
- They can reduce the tax they owe by 10% if they hold onto their Opportunity Zone investment for at least five years. 15% for a minimum of seven years.
- They pay zero capital gains tax on gains earned through the Opportunity Fund if the investor holds onto their Opportunity Zone investment for at least 10 years.
Opportunity Funds include US corporations or partnerships that have the intent to invest 90% or more of their holdings into a qualified Opportunity Zone. Investments must be one of the following types:
- A partnership interest in a business that has the right to work in an approved Opportunity Zone
- Buying stock in an approved Opportunity Zone business
- Investments of real estate or other property located in an approved Opportunity Zone
Generally, investments must be for new buildings or for substantial improvements to existing buildings not in use. There are precise rules a skilled Arizona Opportunity Zone lawyer can explain.
Investors in Opportunity Zones are helping communities in distress. They are also helping themselves, if they meet the Act and IRC requirements, by enabling the reduction of a significant amount of capital gains taxes. Our experienced Phoenix Arizona Opportunity Zone attorneys understand where these investments can be made, how they should be made, and why they’re a good idea. For help with Opportunity Zone Funds, please contact Yaser Ali Law at (480)-442-4175 or fill out our contact form to schedule an appointment.